EBay shares down on weak outlook

Online marketplace operator topped Q3 revenue estimates

BambiFrancisco

NEW YORK (CBS.MW) - EBay shares fell 5 percent Friday after the online marketplace operator offered a 2004 profit projection that was less than analysts estimated.

EBay
EBAY, -1.44%
said sales jumped and third-quarter profit rose almost 70 percent, but the stock fell under pressure on the company's outlook.

EBay said that earnings, excluding certain items, are expected to be 98 cents in 2004. Analysts expected EBay to earn $1.05 next year.

Shares of EBay fell $2.65 to $54.85 in recent trading. But if history is any guide, shares could end the day higher, as they did last year the day after EBay reported third-quarter numbers.

Goldman Sachs analyst Anthony Noto reminded clients that EBay's outlook for the following year has proven to be conservative in the last couple of October reporting periods at which time EBay has given its forward-looking objectives. In fact, Noto says that EBay's goals have "ultimately proven to be 20 to 25 percent below actual results." He cautions that he doesn't see the same magnitude of upside, given the investments he expects EBay to make to remain competitive, he does believe that EBay's 2004 outlook for 98 cents in profit will prove conservative. Noto is still positive on the stock.

"We continue to recommend investors take advantage of the shares trading near an optimal entry point in the low $50s, which provides a 15-20 percent return to our implied value," Noto said. On the bearish side is Smith Barney's Lanny Baker, who has a target price for EBay at $48.

EBay numbers

EBay gave its outlook on the same day it released third-quarter numbers. EBay said that it made $103.3 million, or 16 cents a share, up 69 percent from $61 million last year. Excluding certain items, EBay made $118.3 million, or 18 cents a share, matching the analyst estimate and topping EBay's own goal of 17 cents.

EBay noted that it made investments in on EachNet, China acquisition, customer support on a global basis and product development, Rajiv Dutta, EBay's CFO, said in an interview with CBS MarketWatch. EBay reported sales of $530.9 million, up 84 percent from $288.78 million in the year-ago period.

Additionally, EBay also said that it expects to generate sales of $2.9 billion in 2004, which is slightly above the $2.8 billion estimated by analysts surveyed by Thomson/First Call. EBay said that fourth-quarter sales would be $590 million and $2.1 billion for the year. Analysts had expected fourth-quarter sales of $585 million and 2003 revenue of $2.09 billion.

EBay also expects net income, excluding certain items, to be 21 cents per share in the quarter, and 72 cents for the year. Analysts expected EBay to earn 21 cents in the fourth quarter and 73 cents for the year. (Prior to EBay's release, Thomson/First Call numbers did not inaccurately reflect the MercExchange judgment that brought down earnings in the second quarter. EBay reported earnings, excluding items, of 16 cents in the second quarter, not the 19 cents published on Thomson/First Call.)

What's growing, but at a slower rate

EBay's gross merchandise sales grew 53 percent to $5.8 billion. While it's impressive, growth is slower than the 66 percent year-over-year rise in the second quarter. Goldman's Noto said he suspects that growth was fueled by volume.

EBay said U.S. transaction sales grew 41 percent to $256.1 million. This growth is down from the 53-percent growth EBay turned in during the second quarter. International sales more than doubled to $154.7 million.

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